Description of Advanced Setup

The Advanced database example, distributed with the product, gives a possible layout for a trading operation with three traders and one manager from the manager's perspective. This example demonstrates how RiskWin can be used to facilitate standard valuations as well as Value-At-Risk calculations.

The Advanced example was created by extending the Basic example.

Organizational Layout:

The organization layout was achieved by using the RiskWin functions under the Organization menu.

Before the components for the layout could be entered into the database, the necessary components first had to be planned and the precedence for their creation had to be identified.

The Credit Ratings, Counterparties, Categories and Holiday Calendars required were all created as described in the Basic example setup.

The Advanced example was created to represent how one manager would use RiskWin to manage three traders' positions by performing standard valuation as well as Value-At-Risk calculations.

For this purpose, four Desks were required and they were created using the Desks function under the Organization menu.

The Desks created were called:

There were several Actual Portfolios and Synthetic Portfolios required for this trading operation. These portfolios were created using the Create Portfolio function under the Portfolios menu. [See also Creating Synthetic Portfolios.]

The following Actual Portfolios were created and assigned to Desk MANAGER:

The following Actual Portfolios were created and assigned to Desk TRADER_A:

The following Actual Portfolios were created and assigned to Desk TRADER_B:

The following Actual Portfolios were created and assigned to Desk TRADER_C:

The following Synthetic Portfolios were created and assigned to Desk MANAGER:

The following Synthetic Portfolio was created and assigned to Desk TRADER_A:

The following Synthetic Portfolio was created and assigned to Desk TRADER_B:

The following Synthetic Portfolio was created and assigned to Desk TRADER_C:

Securities Defined:

The first securities that must be defined in RiskWin are the primary Currencies that will be used. After these Currencies have been created, other securities which are required can be created.

The securities required were created using the Create Security function under the Securities menu. [See also Creating Securities.]

The Currencies, Forwards, Standard Options and Single Barrier Options required were all created as described in the Basic example setup.

World Variables Defined:

Each security that is defined requires one or more World Variables in order for the security to be correctly valued. All the World Variables required must first be defined in RiskWin before any valuation procedures can be carried out.

The World Variables required were created using the Create World Variable function under the Variables menu.

The Sovereign Yield Curves, Exchange Rate Structure, Volatility Skew Structures and Price Correlation Structure required for standard valuation calculations were all created as described in the Basic example setup.

In order to perform Value-At-Risk calculations it was necessary to create a Factor Structure. This Factor Structure was designed to create scenarios for spot exchange rates and yield curves on the CAD, DEM and USD currencies. These scenarios are invoked via the multiplier variables which are generated by this Factor Structure and which are used by other World Variables during Value-At-Risk calculations.

The Factor Structure created was called:

In order to use the multiplier variables created by the Factor Structure RM_FS, it was necessary to create the following Sovereign Yield Curves:

Furthermore, in order to use the multiplier variables created by the Factor Structure RM_FS, it was also necessary to create the following Exchange Rate Structure:

World States Defined:

World States are required before valuation can be carried out in the RiskWin framework.

The World States required were created using the World States function under the Variables menu.

The World States created in the Advanced example were called:

The World State CURRENT is defined exactly as it was in the Basic example and can only be used for standard valuation calculations.

However, the World State VAR1_WS has a different set of World Variables assigned to it. This World State can be used for both standard valuation and Value-At-Risk calculations.

Positions Defined:

Actual Positions were created and assigned to the Actual Portfolios.

These Actual Positions were created as Trades using the Trade Security function under the Portfolios menu. Some What-If Positions were also created for most of the Actual Portfolios.

Data Variables Defined:

In the Advanced example, all World Variables were designed to link with External Data Variables and Computed Data Variables except the Factor Structure variable RM_FS. [Although the External Data Variables defined are all set as constant variables, the example demonstrates how such external data could be linked to World Variables.]

Valuation:

Valuation details were specified for most of the Portfolios in order to conduct simple Sensitivity Analysis calculations on Basic and Advanced measures.